UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from __________ to ___________
Commission
File Number:
(Exact name of Registrant as specified in its charter) |
5812 | ||||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☐ Yes ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The registrant has shares of class A common stock outstanding, and shares of class B common stock outstanding as of November 11, 2022.
TABLE OF CONTENTS
i |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and objectives for future operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.
These risks and uncertainties include, among other things, the risk that we may not be able to successfully implement our growth strategy if we are unable to identify appropriate sites for restaurant locations, expand in existing and new markets, obtain favorable lease terms, attract guests to our restaurants or hire and retain personnel; the risk that we may not be able to maintain or improve our comparable restaurant sales growth; that the restaurant industry is a highly competitive industry with many competitors; that our limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants makes us susceptible to significant fluctuations in our results of operations; that we have incurred operating losses and may not be profitable in the future; the risk that our plans to maintain and increase liquidity may not be successful; that we depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations; that our operating results and growth strategies will be closely tied to the success of our future franchise partners and we will have limited control with respect to their operations; the risk that we may face negative publicity or damage to our reputation, which could arise from concerns regarding food safety and foodborne illness or other matters; that minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs; that events or circumstances could cause the termination or limitation of our rights to certain intellectual property critical to our business that is licensed from Yoshiharu Holdings Co., or that we could face infringements on our intellectual property rights and be unable to protect our brand name, trademarks and other intellectual property rights; that challenging economic conditions may affect our business by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending, the future cost and availability of credit and the operations of our third-party vendors and other service providers; the risk that we, or our point of sale and restaurant management platform partners, may fail to secure guests’ confidential, personally identifiable, debit card or credit card information or other private data relating to our employees or us; and the impact of the COVID-19 pandemic, or a similar public health threat, on global capital and financial markets, general economic conditions in the United States, and our business and operations.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described elsewhere in this Quarterly Report on Form 10-Q and in the section titled “Risk Factors” in the Company’s recently filed registration statement on Form S-1 (File No. 333-262330). We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.
ii |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Yoshiharu Global Co.
Unaudited Consolidated Balance Sheets
As of | September
30, 2022 | December
31, 2021 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Inventories | ||||||||
Total current assets | ||||||||
Non-Current Assets: | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use asset | ||||||||
Other assets | ||||||||
Total non-current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Current portion of operating lease liabilities | ||||||||
Current portion of bank notes payables | ||||||||
Current portion of loan payable, PPP | ||||||||
Current portion of loan payable, EIDL | ||||||||
Due to related party | ||||||||
Other payables | ||||||||
Total current liabilities | ||||||||
Operating lease liabilities, less current portion | ||||||||
Bank notes payables, less current portion | ||||||||
Restaurant revitalization fund | ||||||||
Loan payable, EIDL, less current portion | ||||||||
Loan payable, PPP, less current portion | ||||||||
Total liabilities | ||||||||
Commitments and Contingencies | ||||||||
Stockholders’ equity (deficit) | ||||||||
Class
A Common Stock - $ shares issued and outstanding at September 30, 2022 and December 31, 2021 par value; authorized shares; | ||||||||
Class
B Common Stock - $ shares issued and outstanding at September 30, 2022 and December 31, 2021 par value; authorized shares; | ||||||||
Additional paid-in capital | ||||||||
Stock subscriptions receivable | ( | ) | ||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity (deficit) | ( | ) | ||||||
Total liabilities and stockholders’ equity (deficit) | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
1 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Operations
Nine
Months Ended September 30, | Three
Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue: | ||||||||||||||||
Food and beverage | $ | $ | $ | $ | ||||||||||||
Total revenue | ||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | ||||||||||||||||
Labor | ||||||||||||||||
Rent and utilities | ||||||||||||||||
Delivery and service fees | ||||||||||||||||
Depreciation | ||||||||||||||||
Total restaurant operating expenses | ||||||||||||||||
Net operating restaurant operating income (loss) | ( | ) | ||||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | ||||||||||||||||
Related party compensation | ||||||||||||||||
Advertising and marketing | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
PPP loan forgiveness | ||||||||||||||||
Other income | ||||||||||||||||
Interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total other income (expense), net | ( | ) | ||||||||||||||
Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
Income tax provision | ||||||||||||||||
Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
Income (loss) per share: | ||||||||||||||||
Basic and diluted | $ | ( | ) | ( | ) | ( | ) | |||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic and diluted |
See accompanying notes to unaudited consolidated financial statements.
2 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)
Total | ||||||||||||||||||||||||||||||||
Additional | Stock | Stockholders’ | ||||||||||||||||||||||||||||||
Class A Shares | Class B Shares | Paid-In | Subscription | Accumulated | Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Payments received for prior year subscription | - | - | ||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at March 31, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at June 30, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Cancellation of Class A Common Stock | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||
Issuance of Class B Common Stock | ||||||||||||||||||||||||||||||||
Issuance of Class A Common Stock | ||||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at September 30, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ |
Total | ||||||||||||||||||||||||||||||||
Additional | Stock | Stockholders’ | ||||||||||||||||||||||||||||||
Class A Shares | Class B Shares | Paid-In | Subscription | Accumulated | Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Issuance of Class A Common Stock | ( | ) | ||||||||||||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Balance at March 31, 2021 (unaudited) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net Income | - | - | ||||||||||||||||||||||||||||||
Balance at June 30, 2021 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
Issuance of Class A Common Stock | ( | ) | ||||||||||||||||||||||||||||||
Distributions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||||||
Balance at September 30, 2021 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) |
See accompanying notes to unaudited consolidated financial statements.
3 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Cash Flows
For
the nine months ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | ||||||||
PPP loan forgiveness | ( | ) | ( | ) | ||||
Changes in assets and liabilities: | ||||||||
Inventories | ( | ) | ( | ) | ||||
Other assets | ( | ) | ( | ) | ||||
Accounts payable and accrued expenses | ||||||||
Due to related party | ( | ) | ||||||
Other payables | ( | ) | ||||||
Net cash (used in) provided by operating activities | ( | ) | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | ( | ) | ( | ) | ||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Bank overdrafts | ( | ) | ||||||
Proceeds from sale of common shares | ||||||||
Proceeds from borrowings | ||||||||
Repayments on bank notes payables | ( | ) | ( | ) | ||||
Stockholders’ distribution | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Net (decrease) increase in cash | ||||||||
Cash – beginning of period | ||||||||
Cash – end of period | $ | $ | ||||||
Supplemental disclosures of non-cash financing activities: | ||||||||
Forgiveness of paycheck protection program (PPP) loan | $ | $ | ||||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the periods for: | ||||||||
Interest | $ | $ | ||||||
Income taxes | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
4 |
YOSHIHARU GLOBAL CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Yoshiharu Global Co. (“Yoshiharu”) was incorporated in the State of Delaware on December 9, 2021. Yoshiharu did not have significant transactions since formation. Yoshiharu has the following wholly owned subsidiaries:
Name | Date of Formation | Description of Business | ||
The Company owns several restaurants specializing in Japanese ramen and other Japanese cuisines. The Company offers a variety of Japanese ramens, rice bowls, and appetizers. Unless otherwise stated or the context otherwise requires, the terms “Yoshiharu” “we,” “us,” “our” and the “Company” refer collectively to Yoshiharu and, where appropriate, its subsidiaries.
Prior
to September 30, 2021, the Yoshiharu business (the “Business”) consisted of the first seven separate entities listed above
(collectively, the “Entities”), each wholly owned by James Chae (“Mr. Chae”), and each holding one (1) store,
except for JJ, which held two stores and the Business’s intellectual property (the “IP”). Effective October 2021, JJ
transferred the IP to Mr. Chae. Effective October 2021, Mr. Chae contributed
On
December 9, 2021, Yoshiharu completed a share exchange agreement whereby Mr. Chae, the sole stockholder of Holdings, received
5 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting
The unaudited consolidated financial statements include the legal entities listed in Note 1 above as of September 30, 2022 and December 31, 2021 and for the three and nine month periods ended September 30, 2022 and 2021.
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America. The consolidated financial statements include Yoshiharu and its wholly owned subsidiaries. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
Initial Public Offering
In
September 2022, the Company consummated its initial public offering (the “IPO”) of
The
Company granted the underwriters a 45-day option to purchase up to
On September 9, 2022, the Company’s stock began trading on the Nasdaq Capital Market under the symbol “YOSH.”
Deferred Offering Costs
Deferred offering costs were expenses directly related to the IPO. These costs consisted of legal, accounting, printing, and filing fees. The deferred offering costs were offset against the IPO proceeds in September 2022 and were reclassified to additional paid-in capital upon completion of the IPO.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include accounts receivables, accrued liabilities, income taxes, long-lived assets, and deferred tax valuation allowances. These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.
Marketing
Marketing
costs are charged to expense as incurred. Marketing costs were approximately $
Delivery Fees Charged by Delivery Service Providers
The Company’s customers may order online through third party service providers such as Uber Eats, Door Dash, and others. These third-party service providers charge delivery and order fees to the Company. Such fees are expensed when incurred. Delivery fees are included in delivery and service fees in the accompanying consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s net revenue primarily consists of revenues from food and beverage sales. Revenues from the sale of food items by Company-owned restaurants are recognized as Company sales when a customer receives the food that they purchased, which is when our obligation to perform is satisfied. The timing and amount of revenue recognized related to Company sales was not impacted by the adoption of ASC 606.
6 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Inventories
Inventories, which are stated at the lower of cost or net realizable value, consist primarily of perishable food items and supplies. Cost is determined using the first-in, first out method.
Segment Reporting
ASC 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. The Company identifies its operating segments based on how executive decision makers internally evaluates separate financial information, business activities and management responsibility. Accordingly, the Company has one reportable segment, consisting of operating its stores.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:
Furniture and equipment | |||
Leasehold improvements | |||
Vehicle |
Income Taxes
The
accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected
to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing
authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position
are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company
had
Impairment of Long-Lived Assets
When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and other receivables arising from its normal business activities. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for un-collectible accounts and, as a consequence, believes that its accounts receivable related credit risk exposure beyond such allowance is limited.
7 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Fair Value of Financial Instruments
The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments consisted of cash, operating lease right-of-use assets, net, accounts payable and accrued expenses, notes payables, and operating lease liabilities. The estimated fair value of cash, operating lease right-of-use assets, net, and notes payables approximate its carrying amount due to the short maturity of these instruments.
Leases
In accordance with ASC 842, Leases, the Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use asset (“ROU asset”) and operating lease liability. An ROU asset represents the Company’s right to use an underlying asset for the lease term and an operating lease liability represents the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangements generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU asset and operating lease liability. Lease expense for the operating lease is recognized on a straight-line basis over the lease term. The Company has a lease agreement with lease and non-lease components, which are accounted for as a single lease component.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company evaluated ASU 2016-02 and adopted this guidance as of January 1, 2019.
8 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02. ASU 2018-10 supersedes the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for emerging growth companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. The Company adopted this guidance as of January 1, 2019.
In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” (“ASU 2018-11”). The amendments in ASU 2018-11 related to transition relief on comparative reporting at adoption affect all entities with lease contracts that choose the additional transition method and separating components of a contract affect only lessors whose lease contracts qualify for the practical expedient. The amendments in ASU 2018-11 are effective for emerging growth companies for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2019.
In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“Topic 842”) (“ASU 2019-01”). These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied (Issue 1). ASU 2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities (Issue 2). Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard (Issue 3). The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842. This amendment is for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company evaluated ASU 2019-01 and adopted this guidance as of January 1, 2019.
COVID-19 Impact on Concentration of Risk
The novel coronavirus (“COVID-19”) pandemic has significantly impacted health and economic conditions throughout the United States and globally, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. We have experienced significant disruptions to our business due to the COVID-19 pandemic and related suggested and mandated social distancing and shelter-in-place orders.
9 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Leasehold Improvement | $ | $ | ||||||
Furniture and equipment | ||||||||
Vehicle | ||||||||
Total property and equipment | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total property and equipment, net | $ | $ |
Total
depreciation was $
4. BANK NOTES PAYABLES
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
September
22, 2017 ($ | $ | $ | ||||||
November 27, 2018
($ | ||||||||
February 13, 2020
($ | ||||||||
September 14, 2021
($ | ||||||||
September 15, 2021
($ | ||||||||
April 22, 2022 ($ | ||||||||
Total bank notes payables | ||||||||
Less - current portion | ( | ) | ( | ) | ||||
Total bank notes payables, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
September 22, 2017 – $250,000 – Global AA Group, Inc.
On
September 22, 2017, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a loan of
$
10 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. | BANK NOTES PAYABLES (Continued) |
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
November 27, 2018 – $780,000 – Global JJ Group, Inc.
On
November 27, 2018, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing a loan of
$
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
February 13, 2020 – $255,000 – Global CC Group, Inc.
On
February 13, 2020, Global CC Group, Inc. (the “CC”) executed the standard loan documents required for securing a loan of
$
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
September 14, 2021 – $197,000 – Global CC Group, Inc.
On
September 14, 2021, the CC executed the standard loan documents required for securing a loan of $
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
As
of September 30, 2022, the CC has received $
11 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. | BANK NOTES PAYABLES (Continued) |
September 15, 2021– $199,000 – Global DD Group, Inc.
On
September 15, 2021, Global DD Group, Inc. (the “DD”) executed the standard loan documents required for securing a loan of
$
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
As
of September 30, 2022, the DD has received $
April 22, 2022– $195,000 – Yoshiharu Cerritos
On
April 22, 2022, Yoshiharu Cerritos (the “YC”) executed the standard loan documents required for securing a loan of $
Pursuant
to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based
on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on
funds actually advanced from the date of each advance. The loan requires a payment of $
As
of September 30, 2022, the YC has received $
12 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. LOAN PAYABLES, PPP
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
February
16, 2021 ($ | $ | $ | ||||||
February 16, 2021
($ | ||||||||
February
16, 2021 ($ | ||||||||
Total loan payables, PPP | ||||||||
Less - current portion | ( | ) | ||||||
Total loans payables, PPP, less current portion | $ |
February 16, 2021 – $131,600 – Global AA Group, Inc.
On
February 16, 2021, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a Paycheck
Protection Program Loan (the “AA PPP Loan”) of $
The
AA PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 1, 2022, $
February 16, 2021 – $166,700 – Global JJ Group, Inc.
On
February 16, 2021, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing a PPP loan
(the “JJ PPP Loan”) of $
13 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. | LOAN PAYABLES, PPP (Continued) |
The
JJ PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 9, 2022, $
February 16, 2021 – $87,600 – Global BB Group, Inc.
On
February 16, 2021, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing a PPP loan
(the “BB PPP Loan”) of $
The
BB PPP Loan is administered by the SBA. The interest rate of the loan is
On
February 24, 2022, $
14 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. LOAN PAYABLES, EIDL
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
June
13, 2020 ($ | $ | $ | ||||||
June 13, 2020 ($ | ||||||||
July
15, 2020 ($ | ||||||||
Total loans payables, EIDL | ||||||||
Less - current portion | ( | ) | ( | ) | ||||
Total loans payables, EIDL, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
June 13, 2020 – $150,000 – Global AA Group, Inc.
On June 13, 2020, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the AA’s business.
Pursuant
to that certain Loan Authorization and Agreement, the AA borrowed an aggregate principal amount of the AA EIDL Loan of $
In connection therewith, the AA executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security agreement, granting the SBA a security interest in all tangible and intangible personal property of the AA, which also contains customary events of default.
June 13, 2020 – $150,000 – Global BB Group, Inc.
On June 13, 2020, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing an EIDL loan (the “BB EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the BB’s business.
15 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. | LOAN PAYABLES, EIDL (Continued) |
Pursuant
to that certain Loan Authorization and Agreement, the BB borrowed an aggregate principal amount of the BB EIDL Loan of $
In connection therewith, the BB executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security agreement, granting the SBA a security interest in all tangible and intangible personal property of the BB, which also contains customary events of default.
July 15, 2020 – $150,000 – Global JJ Group, Inc.
On July 15, 2020, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing an EIDL loan (the “JJ EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the JJ’s business.
Pursuant
to that certain Loan Authorization and Agreement, the JJ borrowed an aggregate principal amount of the JJ EIDL Loan of $
16 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. RESTAURANT REVITALIZATION FUND
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
June
1, 2021 ( | $ | $ | ||||||
Total restaurant revitalization fund | $ | $ | ||||||
Less - current portion | ||||||||
Total restaurant revitalization fund, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2022:
For the years ended | Amount | |||
2022 (remaining three months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
June 1, 2021 – $700,454 – Global JJ Group, Inc.
On
June 1, 2021, Global JJ Group, Inc. (the “JJ”) executed the documents required for securing a Restaurant Revitalization Fund
(the “RRF Loan”) of $
The
RRF Loan is administered by the SBA. The interest rate of the RRF Loan is
As of September 30, 2022, none of the notes payables, loans payables, and RRF Loan noted above are in default.
17 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARY TRANSACTIONS
The Company had the following related party transactions:
● | Due
to related party – From time to time, the Company loaned money to APIIS Financial
Group, a company owned by James Chae, who is also the majority stockholder and CEO of the
Company. The balance is non-interest bearing and due on demand. As of September 30, 2022
and December 31, 2021, the balance was $ and $ |
● | Distributions
– From time to time, the Company made distributions to James Chae. For the
nine months ended September 30, 2022 and 2021, James Chae was distributed $ and $ |
● | Related party compensation - For the nine months ended September 30, 2022 and 2021, the compensation to James Chae was $ | and $ , respectively.|
● | Combination
of Entities Under Common Control - Effective October 2021, JJ transferred IP assets
to James Chae, and then Mr. Chae contributed |
● | Private
Placement - In December 2021, the Company received subscriptions for the sale of
| |
● | Exchange of class A common stock for class B common stock - Immediately prior to the IPO in September 2022, the Company exchanged | shares of class A common stock held by James Chae into shares of class B common stock.
18 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
Commitments
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component.
In accordance with ASC 842, the components of lease expense were as follows:
September 30, | ||||||||
For the nine months ended | 2022 | 2021 | ||||||
Operating lease expense | $ | $ | ||||||
Total lease expense | $ | $ |
In accordance with ASC 842, other information related to leases was as follows:
For the nine months ended | 2022 | 2021 | ||||||
Operating cash flows from operating leases | $ | $ | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
Weighted-average remaining lease term—operating leases | ||||||||
Weighted-average discount rate—operating leases | % |
Operating | ||||
Year ending: | Lease | |||
2022 (remaining six months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total undiscounted cash flows | $ | |||
Reconciliation of lease liabilities: | ||||
Weighted-average remaining lease terms | ||||
Weighted-average discount rate | % | |||
Present values | $ | |||
Lease liabilities—current | ||||
Lease liabilities—long-term | ||||
Lease liabilities—total | $ | |||
Difference between undiscounted and discounted cash flows | $ |
19 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. STOCKHOLDERS’ EQUITY (DEFICIT)
Class A Common Stock
The Company has authorization to issue and have outstanding at any one time shares of class A common stock with a par value of $ per share. Each share of class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.
See Note 1 and Note 8 above for details regarding the issuance and redemption of shares of the Company’s class A common stock to and from James Chae, the Company’s majority stockholder, in December 2021.
In
December 2021, the Company received subscriptions for the sale of
In
September 2022, the Company consummated its initial public offering (the “IPO”) of
Immediately prior to the IPO, the Company issued shares of class A common stock as compensation to directors and consultants. The Company has accrued approximately $ million of compensation expense at December 31, 2021 for the shares at $ per share, which the Company’s board of directors determined to reflect the then current fair market value of the Company’s Class A common stock. Upon the issuance of the shares, the accrued liability was adjusted to additional paid-in-capital.
The
Company also granted the underwriters a 45-day option to purchase up to
20 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
Class B Common Stock
The
Company has authorization to issue and have outstanding at any one time
The holders of class B common stock are entitled to dividends as declared by the Company’s Board of Directors from time to time at the same rate per share as the class A common stock.
The holders of the class B common stock have the following conversion rights with respect to the class B common stock into shares of class A common stock:
● | all of the shares of class B common stock will automatically convert into class A common stock on a one-for-one basis upon the earlier of (A) the date such shares cease to be beneficially owned by James Chae and (B) 5:00 p.m. Pacific Time on the date that James Chae ceases to beneficially own at least % of the voting power of all the outstanding shares of capital stock of the Company; and |
● | at the election of the holder of class B common stock, any share of class B common stock may be voluntarily converted into one share of class A common stock. |
Immediately prior to the IPO in September 2022, the Company exchanged shares of class A common stock held by James Chae into shares of class B common stock.
The Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. The Company did not have any dilutive common shares for the nine months ended September 30, 2022 and 2021.
12. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after September 30, 2022 up through the date the unaudited consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the nine-month period ended September 30, 2022.
21 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Prospectus on Form S-1 (File No. 333-262330). As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in our Prospectus filed on Form S-1.
Overview of Yoshiharu
Yoshiharu is a fast-growing Japanese restaurant operator and was borne out of the idea of introducing the modernized Japanese dining experience to customers all over the world. Specializing in Japanese ramen, Yoshiharu gained recognition as a leading ramen restaurant in Southern California within six months of our 2016 debut and has continued to expand our top-notch restaurant service across Southern California, currently owning and operating 8 restaurant stores with an additional 1 new restaurant store under construction/development and an additional 8 new restaurant stores expected to open in 2022.
We take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over 12 hours. Customers can taste and experience supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, Yoshiharu serves the perfect, ideal ramen, as well as offers customers a wide variety of sushi rolls, bento menu and other favorite Japanese cuisine. Our acclaimed signature Tonkotsu Black Ramen has become a customer favorite with its slow cooked pork bone broth and freshly made, tender chashu (braised pork belly).
Our mission is to bring our Japanese ramen and cuisine to the mainstream, by providing a meal that customers find comforting. Since the inception of the business, we have been making our own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, whereby upholding the quality and taste of our foods, including the signature texture and deep, rich flavor of our handcrafted broth. Moreover, we believe that slowly cooking the bone broth makes it high in collagen and rich in nutrients. Yoshiharu also strives to present food that is not only healthy, but also affordable. We feed, entertain and delight our customers, with our active kitchens and bustling dining rooms providing happy hours, student and senior discounts, and special holiday events. As a result of our vision, customers can comfortably enjoy our food in a friendly and welcoming atmosphere.
We operate in a large and rapidly growing market. We believe the consumer appetite for Asian cuisine is widespread across many demographics and have an opportunity to expand in both existing and new U.S. markets, as well as internationally.
22 |
Our Growth Strategies
Historically, we have averaged an opening of 1 store per year utilizing solely bank debt, revenues and related party loans. However, utilizing 38.47% of the net proceeds of our IPO in September 2022, we expect in the short term to open 8 new corporate-owned restaurants (excluding the 1 store currently under construction/development). Based on our internal analysis, we believe that we have the potential to grow our current domestic corporate-owned restaurants and international footprint to at least 250 restaurants domestically and at least 750 restaurants internationally by utilizing revenues generated by an increased number of corporate-owned restaurants, revenues generated through our franchise program (currently we do not have such a program), proceeds from the sale of equity securities in the public markets as a publicly traded company, and debt financings. The rate of future restaurant growth in any particular period is inherently uncertain and is subject to numerous factors that are outside of our control. As a result, we do not currently have an anticipated timeframe for such expansion.
Pursue New Restaurant Development.
We have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant sizes and geographies, we plan to leverage our expertise opening new restaurants to fill in existing markets and expand into new geographies. While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including but not limited to landlord delays; competition in existing and new markets, including competition for restaurant sites; and the lack of development and overall decrease in commercial real estate due to a macroeconomic. We believe there is a significant opportunity to employ this strategy to open additional restaurants in our existing markets and in new markets with similar demographics and retail environments.
Deliver Consistent Comparable Restaurant Sales Growth.
We have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including the potential of a larger format restaurant with a sake bar concept.
Franchise Program Development.
We are aiming to initiate sales of franchises beginning in 2023. We intend to submit an application for franchise registration in California, and we intend to submit franchise applications in additional states over the next few months. While our initial franchise development will focus on the United States, we also believe the Yoshiharu concept will attract future franchise partners around the world.
Increase Profitability.
We have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we continue to grow, we expect to drive higher profitability by taking advantage of our increasing buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize labor costs at existing restaurants as our restaurant base matures and average revenues per restaurant increase. We believe that as our restaurant base grows, our general and administrative costs will increase at a slower rate than our sales.
Heighten Brand Awareness.
We intend to continue to pursue targeted local marketing efforts and plan to increase our investment in advertising. We also are exploring the development of instant ramen noodles which we would distribute through retail channels. We intend to explore partnerships with grocery retailers to provide for small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine.
23 |
Components of Our Results of Operations
Revenues. Revenues represent sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales growth.
Food and beverage. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grows.
Labor. Labor includes all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes. Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales increase. Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants.
Rent and utilities. Rent and utilities include rent for all restaurant locations and related taxes.
Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from three to ten years.
Delivery and service fees. The Company’s customers may order online through third party service providers such as Uber Eats, Door Dash, Grubhub and others. These third-party service providers charge delivery and order fees to the Company.
General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs. General and administrative expenses are expected to grow as our sales grows, including incremental legal, accounting, insurance and other expenses incurred as a public company.